The Dutch tax return deadline is on 1 May, and it’s a good idea for expats to know the changes to income taxes in the Netherlands and how to file them.
Moving to another country can be overwhelming, but it is important to understand the income tax system and how it works. Effective tax planning is not only important during tax season, but also during the process of immigrating, starting a job, or even buying or selling your own property.
This guide sponsored by tax specialists J.C. Suurmond explains how to file your income tax return in the Netherlands, and includes the following information:
- Income tax in the Netherlands
- Earnings subject to income tax in the Netherlands
- How to file your tax return in the Netherlands
- Income tax rates in the Netherlands
- Income tax in the Netherlands for foreigners
- Tax refunds in the Netherlands
- Tax fines in the Netherlands
- Income tax advice in the Netherlands
- Useful resources
J.C. Suurmond Tax
J.C. Suurmond Tax consultants provide tailor made advice and personal guidance on tax matters. With over 30 years experience, the organization is a fully-developed tax advisory office, for both private individuals and companies.
Income tax in the Netherlands
The Dutch Tax and Customs Administration (Belastingdienst) is the entity of the Ministry of Finance, and is responsible for collecting taxes and social security contributions. Tax revenues finance government expenses such as social security benefits and subsidies for culture, housing, childcare, healthcare, and pensions.
In the Netherlands, there are three different types of taxable income – or “boxes” – and each has its own tax rate(s). To calculate your taxable income, you need to aggregate your income in these three boxes:
- 1: income from work and home ownership;
- 2: financial interests in a company;
- 3: savings and investments
Getting your BSN number
When you register in a Dutch city council or town hall, the tax authorities will be notified automatically and issue you a BSN number (the Dutch social security number). They will then regard you as a domestic taxpayer, with all the advantages and disadvantages of a regular Dutch taxpayer. The registration is mandatory to live and work in the Netherlands.
Withheld income tax
If you work for a company as an employee, you must pay personal income tax and social security contributions. Withholding income tax (wage tax) at source is one of the obligations of the employers in the Netherlands during each pay-cycle. Your employer will also withhold contributions to health insurance, unemployment, and pension funds (national insurance contributions) during the payroll process. As a result, you avoid having to pay a large amount of income tax as a lump sum. In summary, wage tax and national social insurance contributions are advance payments for income tax.
Filing a tax return
Although your employer withholds your income tax, you still need to file a tax return. Even if you have not received the letter from the Tax Administration with the provisional assessment, you may still need to file a tax return. For example, if you have income which hasn’t been taxed (savings, properties, or shares), you must legally request a form and file a tax return.
Rules for freelancers
In addition to VAT, self-employed people and freelancers must pay income tax over their taxable earnings. This is your income minus deductible items and fiscal allowances. Every year, you will receive a declaration letter from the Dutch Tax Office to file an income tax return. However, if you have not received a letter, but expect to pay over €45 or get a refund of over €14, you should also file a tax return.
Who pays income tax in the Netherlands?
If you live in the Netherlands or receive income from the Netherlands, you must pay income tax in the country. You will pay tax on your income, savings and investments, and even your financial interests in a company if this is the case.
Expat employees who satisfy certain conditions can apply for the 30% ruling tax exemption. This allows them to have 30% of their salary untaxed for 5 years. Those who are eligible for this benefit can choose the partial non-resident taxpayer status; this means they are a non-resident taxpayer for part of the income tax. Essentially, if you opt for partial non-resident taxpayer status, you will pay less tax in the Netherlands. However, some income earned outside of the Netherlands may also be taxable.
Who is exempt from income tax in the Netherlands?
If you have any source of income in the Netherlands, you will pay taxes on it. The amount will depend on which boxes your worldwide income falls under.
Tax exemption in Box 1
In Box 1, the employer can pay employment income or certain costs (partly) tax-free under strict conditions, such as relocation allowance and extraterritorial costs. In this box, deductions include, amongst others:
- specific medical expenses;
- alimony and other maintenance obligations;
- study expenses;
- temporary stay at home for the severely disabled;
- deductible costs of home-ownership
Tax exemption in Box 3
In Box 3, you cannot include certain goods for personal use as assets in the net capital. Some assets that are tax exempt in this box include:
- the property you live in (if it is yours);
- some types of insurance;
- investments in environmental and cultural projects
Earnings subject to income tax in the Netherlands
The amount of taxes you must pay in the Netherlands depends on the type of your earnings. The Dutch tax administration divides different types of earnings into three boxes, each with its own brackets and rates. You can find out more about the most common earnings below.
Taxes on income and salary in the Netherlands
The income an individual receives is subject to Dutch personal income tax, which is included in Box 1 of taxation. In the referred box, you will pay tax on your income from work, which includes:
- salary and tips;
- business profits;
- benefit, pension, annuities, and maintenance payments;
- income earned as a self-employed, freelancer, artist, or professional athlete
It is important to know that any Dutch payroll tax already withheld on the income will reduce the amount of Dutch personal income tax payable.
Social security contributions
As mentioned, if you are an employee of a company, you must pay personal income tax and social security contributions. Your employer withholds these at source during each pay-cycle. Hence, all those contributions are an advance payment for the individual income tax; so you avoid having to pay a large amount of income tax all at once. Employer social security contributions amount to around 18-19% of employee salaries, while employee contributions are around 28%.
From 2020, all income in Box 1 will face progressive tax rates up to a maximum of 49.5%. Once you have reached the state pension age (66 years old), a special rate applies.
Taxes on employment benefits
Employers must withhold salaries tax and national insurance contributions from all income components paid to employees. This includes salary, holiday allowance, overtime payment, annual bonus, commissions, and benefits such as a company car.
Some tax-free employment benefits such as travel allowances, study costs, lunches, and Christmas hampers can be provided by the employers. However, employers may provide such items tax-free only if their total value is less than 1.5% of the total salary costs. If their total value exceeds 1.5%, the employer must pay an 80% tax on the excess.
Taxes on savings and investments
In the Netherlands, you pay tax on your savings, investments, shares, and a second home. This wealth income is taxed in Box 3, which has a tax-free capital threshold of €30,846 (tax-exempt capital).
The capital is the value of all your assets (such as savings and investments) minus any debts. The reference date is 1 January. Your actual earnings are not relevant. After calculating your real capital, you may subtract from it the threshold of €30,846, which will be tax exempt. You can then apply an annual rate (your annual return on these assets) on the remaining amount. This is the fixed return.
2020 tax return rates
For 2020, the Dutch government assumes that the fixed return will be the following percentages (applied as progressive brackets):
- 1.80% on a total value of €0 to €72,797
- 4.22% on a total value of €72,797 to €1,005,572
- 5.33% on a total value exceeding €1,005,572
Calculating your fixed return
On this assumed fixed return you must pay a 30% income tax. For example, if you have €40,000 on savings and no debts on 1 January, then your real capital is €40,000. From this capital, you can subtract €30,846 that is tax-free. The remaining amount will be €9,154, which falls into the first bracket. In this bracket, a rate of 1.80% applies, which makes a “fixed return” of €164,77. 30% income taxes apply to this fixed return. Therefore, the tax bill on your savings will be €49.43.
Note that the interest income, which is not qualified as income from substantial interest, is taxed following the rules on the taxation of dividend income (Box 3). If a person – either alone or together with a partner – holds, directly, or indirectly at least 5% of the shares in a company, this is considered having a substantial interest. In this case, Box 2 applies.
Taxes on rental income
If you rent out a property in the Netherlands that you own, you pay tax on the value of the property – or the WOZ-value – minus the mortgage amount. According to the Dutch tax office, the rental income is not a source of income itself, therefore they assess it in Box 3; where you report income from savings and investments. Therefore, this type of income is not taxable.
However, when you choose to rent your property, you can no longer deduct the mortgage interest. If you live outside of the Netherlands while letting a Dutch property, not all assets fall under this category.
Rental income will be taxable if the income is essentially a business activity. In this situation, the income is taxable as income arising from other activities in Box 1.
How to file your tax return in the Netherlands
If you receive any income from the Netherlands, you are liable to pay income tax, even if you do not reside in the Netherlands. You will need to file a tax return to pay tax or receive a refund if you have paid too much.
If you haven’t received the letter with the provisional assessment, you may still need to file a tax return. For example, if you have been employed in the Netherlands and the payroll tax was withheld from your salary each month; but you received income which hasn’t been taxed; such as savings or shares; legally you have to request a form and file a return. You can use the Dutch tax office’s income tax return program to determine whether you need to pay tax or can get a refund – and if so, how much.
It is important to know that before filing your tax forms digitally via the Belastingdienst website, you first need to apply for a DigiD, which can take several weeks. The Dutch tax administration is gradually shifting from paper to digital correspondence, therefore it is a good idea to prioritize digital communication and activate your online account at MijnOverheid.nl to access your messages.
Furthermore, the Belastingdienst website is only available in Dutch, which makes many expats search for a tax accountant or adviser. Many of them are English-speaking and specialized in expats and international tax issues.
Getting a tax rebate
If you didn’t work the whole year in the Netherlands, you can get a tax refund. This is because the tax withheld each month from your salary is calculated based on your annual salary. Therefore, even if you have not received a form from the authorities, it is worth to file a tax return.
After submitting your tax return, you will receive a preliminary assessment from the tax authorities between 1 to 3 months after the submission. The preliminary assessment is simply an estimation. You will receive the final assessment, along with payment or refund details, once the tax authorities have checked the tax return.
Self-employed people and freelancers in the Netherlands must also file the tax return regularly for one or more taxation types. The tax administration will determine the type of tax after you have registered your company with the Chamber of Commerce.
Income tax deadlines in the Netherlands
The Dutch tax year runs from 1 January to 31 December. You must file your tax returns in the consecutive year. The exact deadline will depend on your tax position and the type of form you should file.
In theory, tax residents in the Netherlands should submit their tax return any time from 1 March until 1 May; although it is possible to request an extension at any time before this date. Usually, you will have until 1 September. Tax advisers can generally request more time on top of this. For non-resident taxpayers, the deadline is 1 July; however, they can also apply for a postponement.
For income tax or corporate income tax, you must submit the tax return annually. For turnover tax (VAT), you must submit the tax return on an annual, monthly, or quarterly basis. If you employ people, you must submit a tax return for payroll tax.
Income tax forms in the Netherlands
Depending on your personal situation, you should file a specific type of form. The most common forms are:
- P-form: for those who have lived in the Netherlands for the entire fiscal year and are in a regular employment situation (resident taxpayers);
- E-form: a simplified P form which only mentions the basics;
- M-form: for those who have lived in the Netherlands only for part of the year; such as people who have immigrated to or emigrated from the Netherlands the year before. Note that you can’t fill this in online, but you can apply for an M Form online;
- C-form: for those who don’t live in the Netherlands at the moment, but earn Dutch income (non-resident taxpayers);
- W-form: for self-employed professionals;
- F-form: for relatives of a deceased person
Income tax rates in the Netherlands
The Dutch government has announced several measures for the coming years. Most of the new amendments to the tax system, such as the Tax Plan 2020, will apply from 1 January 2020.
From 2020, the Dutch tax office will reduce the number of tax brackets in Box 1 to two (it is currently 3). Earnings up to €68,507 will be taxed at 37.35%, while earnings over that limit will be taxed at 49.5%. As both rates have come down, a lot of people will benefit from higher net salaries.
Income from a substantial interest or holding (at least 5%) in a limited company or regular benefits such as dividends and shares is assessed in Box 2. The rate for this box is 25%.
Box 3 covers income from assets such as savings and investments. The value of your assets, minus debts, is calculated once annually, on January 1, to determine your net capital value. Everyone is entitled to a tax-free capital of €30,846 based on this net value (heffingsvrij vermogen).
Whatever amount that remains after the subtraction of the € 30,846 is taxed in the following brackets:
- €0 – €72,797: 1.80%
- €72,797 – €1,005,572: 4.22%
- > €1,005,272: 5.33%
If you are married, you and your partner are entitled to a tax-free capital of €61,692.
In 2020, the Dutch corporate tax rates will be 16.5% on profits up to €200,000 (lower rate); and 22.5% on profits above €200,000 (standard rate).
From 2021, the rates will change to 15% on profits up to €200,000 (lower rate); and 20.5% on profits above €200,000 (standard rate).
Self-employed tax rates
The self-employed tax break will be lowered from €7,280 to €7,030 in 2020 as the government starts a slow process of cutting the deduction down to €5,000 by 2028. This means that the self-employed will pay slightly more taxes in the coming years.
However, the new small business scheme (KOR) comes into force on 1 January 2020. If your turnover per calendar year does not exceed €20,000, you may be eligible for the new small business scheme. In practical terms, you will not have to charge your customers VAT and pay the Tax Administration VAT. Consequently, you will no longer have to file a VAT return. Be aware of the exceptions!
Personal tax allowance and deductions in the Netherlands
Personal allowances are expenditures that you may deduct from your taxable income under certain conditions, such as medical expenses and study costs. If you intend to apply for these benefits, you will need a citizen service number (BSN). Your partner and your children should have a BSN, too, in this case.
If you are married, you qualify as fiscal partners, and you can file a joint tax return. You can do this the smart way by allocating deductions such as mortgage interest, study costs, and alimony payments to the partner with the highest income.
This also counts if you have a legally-registered partnership and are registered as living at the same address, if you and your partner are registered at the same address and own the house together, have a child together, or have a joint pension scheme.
Tax benefits of being married
Note that if you are married, you do not need to live at the same address. If you have immigrated to the Netherlands before your partner, you cannot file a joint tax return in the migration year.
It is wise to become legally registered partners if you have a child together. One reason is that you can only inherit from your partner if you are married or if your partnership is legally registered.
Taxes for homeowners
For homeowners, mortgage interest (on your primary residence) and mortgage-related expenses are tax-deductible. In 2020, the tax deduction relating to mortgage interest will be 46% at maximum. From the coming years, the mortgage interest deduction will be gradually cut by 3% per year until it reaches the basic rate of 37.05% in 2023.
Tax relief can be paid in monthly instalments during the year after filing the tax form for a provisional refund for mortgage relief; you can request this at the Dutch tax authority. If you leave the country again, you can rent out the house, sell it, or keep it for your own use. In some circumstances, if you choose the latter, the property can remain in Box 1 with mortgage interest deduction. If you sell the property, there is no capital gains tax.
Self-employed income tax allowances in the Netherlands
Costs with equipment, travel, marketing, legal, accountancy, and services from a third party can be deducted as business expenses. However, dinners, gifts, and study trips costs are only partially deductible. Clothes, fines, personal devices, and personal computers are not deductible.
Self-employed and freelancers can also apply for certain entrepreneur facilities such as investment allowance, tax-deferred retirement reserve, and entrepreneur allowance (tax credits).
Tax deductible facilities
- Private business ownership allowance (zelfstandigenaftrek): If you pay income tax in the Netherlands, you will be eligible as an entrepreneur, and this will reduce your taxable income;
- Tax relief for new companies (startersaftrek): is an increase in the private business ownership allowance intended for new businesses;
- Small business scheme (kleineondernemersregeling): If you are eligible for the small business scheme, you pay less VAT;
- Microcredit: is available for (start-up) businesses in need of a loan or guidance. The scheme consists of a loan of up to €50,000 and coaching;
- SME profit exemption (MKB-winstvrijstelling): is an allowable deduction for small and medium-sized enterprises. The number of hours you work for your business is irrelevant in this respect. After having deducted the allowances above from their profit, entrepreneurs are entitled to an extra 14% tax relief.
However, to fulfil the above-mentioned allowances, you have to work in your business for at least 1.225 hours a year. You must spend more than 50% of your working time working for your own company. This requirement does not apply if you have not been self-employed or a freelancer in the last 5 years.
Income tax in the Netherlands for foreigners
If you live in the Netherlands, you must state your worldwide income in your tax return. This includes your income from abroad, such as income from employment or foreign property. However, declaring your income from abroad does not always mean that you have to pay income tax on it in the Netherlands.
If your country has a tax treaty with the Netherlands, you can avoid paying tax on your income more than once. This is called double tax relief. The Netherlands has concluded tax treaties with a considerable number of countries, however the contents of these treaties are not the same for every country.
The 30% ruling
Expats living in the Netherlands can also benefit from what is known as the 30% tax ruling if they are working for a Dutch employer. This is a tax ruling for workers who are hired from abroad, providing they meet certain conditions such as minimum salary requirements.
If eligible, expat employees can receive 30% of their salary as a tax-free allowance, which is processed in payroll and usually paid out on a monthly basis. This allowance is treated as compensation for the costs of working/living in the Netherlands, and it can be paid for up to 5 years. Expats need to be aware that the 30% ruling benefit will impact other benefits he/she could be eligible for, such as social security, pensions, and residential mortgage loan, since they are based on your taxable salary.
Foreign pension schemes
From the moment you immigrate, you will, for tax purposes, be considered a resident taxpayer. This means that you have to pay income tax and national insurance contributions in the Netherlands. The Dutch Tax Authorities, however, can assign a foreign pension scheme as a recognized Dutch pension scheme. As a result, the foreign pension scheme does qualify under Dutch law; this means that payments to the pension scheme are tax-deductible. For employees from the EU/EEA, a simplified procedure applies for recognition of the foreign pension scheme.
Note that working in different countries often results in a lower pension, as changing pension systems generally has a negative influence on your pension accumulation. The impact in your situation depends on the fund or system that you come from and go to.
Tax refunds in the Netherlands
If you work in an employment situation, the payroll tax is withheld from your salary. This means that if you work in an employment situation the full year, you will most likely not have to pay any additional Dutch income tax. If you are in this situation, you will probably not even receive an invitation from the Dutch tax authority to file a tax declaration in the Netherlands.
Requesting a tax form
However, if you haven’t received an invitation to submit your Dutch tax return, you can request the Dutch tax authority to issue a tax form on your behalf. Furthermore, if you know you have to report Dutch income tax to the authorities, that hasn’t yet been taxed, you are legally obliged to request a form and submit your Dutch tax return.
On the other hand, if you had tax-deductible expenses or the Dutch wage tax was over withheld during a calendar year; you may want to submit your return to get a tax refund in the Netherlands.
Tax breaks for parents
If you don’t have anything to declare other than your regular employment income, it can still be worthwhile to submit a return. For instance, if you and your partner both work and have a child under the age of 12, you may be entitled to the income-depending combination tax credit; this rises depending on your income up to a maximum of €2,835 (2019).
How to file your tax return
If you do not use the service of a financial advisor, you can also file your Dutch tax return yourself. Your tax declaration has to be submitted electronically; for which you must first download the software program from Belastingdienst, the Dutch tax authority. Once completed, you can then submit your Dutch tax return electronically by using your DigiD.
The Dutch tax administration only transfers refunds to the personal bank account of the referred taxpayer. An income tax assessment will be issued by a tax inspector after the tax return has been audited. The refunds will be received after receipt of the final assessment; normally within two months.
Tax fines in the Netherlands
When you have filed a tax return but fail to pay the payroll taxes in time, or in full, then you will pay an administrative fine of 3% of the amount not paid in time or still outstanding. The fine starts at a minimum of €50 up to €5,278. On the other hand, if you do not file a return or file a return on time, then you will receive an administrative fine of €65.
If there is a recurrent failure to either file correct and complete returns or file returns in time, or make the payments in time, the Dutch tax authorities may impose higher administrative fines, such as:
- Maximum of €1,319: failure to file returns or failure to file returns in time;
- Maximum of €5,278: failure to pay the payroll taxes or pay the payroll taxes in time or in full: a maximum of 10% of the amount of the payroll taxes not paid in time or still outstanding.
Income tax advice in the Netherlands
Effective tax planning is not only important during tax season in the Netherlands, but also during immigration, emigration, the start of employment, and property sale or purchase.
To make sure you are handling your Dutch taxes correctly, you can request a free tax review from many reputable tax preparers. After examining your current tax situation, a consultant will provide a quote for submitting your tax return or for further advice.
Free tax scans
A free tax scan can be useful even if your tax return is already arranged by your employer; this is usually carried out by a large accountancy office. Expats often feel that they get a one-size-fits-all service from employers, finding that the accountancy company works primarily for the employer’s interest and not theirs; especially in regard to having no knowledge of what Dutch tax refunds they are entitled to.
As a result, many choose to get a second opinion from a tax adviser who is specialized in tax returns and refunds in the Netherlands. The same goes for self-employed professionals who can ask for extra help regarding their taxes and allowance requests.